Question

Tax cuts _________.A) and increases in government expenditures shift aggregate demand right.B) and increases in government expenditures shift aggregate demand left.C) shift aggregate demand right while increases in government expenditures shift aggregate demand left.D) shift aggregate demand left while increases in government expenditures shift aggregate demand right.

Answer 1

Answer: A. and increases in government expenditures shift aggregate demand right.

Explanation: Government expenditures or spending affect the aggregate demand, because it is one of the component of aggregate demand. If there is an increase in government spending the aggregate demand will shift to the right.

When there is tax cut or reduction in tax, there will be more disposable income which will increase consumption and savings and in turn shift the aggregate demand to the right.